The Financial Conduct Authority v Samuel Anthony Exall & Anor

When distributing recoveries under Financial Services and Markets Act 2000, the court must seek a fair and practicable method that advances compensation for those affected by unauthorised activity. It should ensure that reasonable steps have been taken to identify qualifying persons and their losses, but may adopt a rough-and-ready approach where the evidence is incomplete and the recovery is substantially below the losses.

A per capita distribution may be appropriate where losses cannot fairly be verified. A pro rata distribution may be appropriate where reliable loss information exists. A minimum loss threshold may be imposed where processing very small claims would be disproportionate to the recovery and the regulator’s resources.

The Financial Conduct Authority applied under section 382(3) of the Financial Services and Markets Act 2000 for directions governing the distribution of recoveries from two unrelated unauthorised investment businesses.

In the first application, proceeds from the sale of land were recovered under a consent order and the FCA proposed a per capita distribution among identified investors. In the second, a restitution payment following summary judgment and the respondent’s bankruptcy was available for distribution. The FCA proposed a pro rata distribution among investors whose identified losses exceeded £500.

The applications raised issues concerning jurisdiction, service, identification of qualifying persons, exclusion of the wrongdoer, the appropriate distribution method and the proportionality of a minimum threshold.

1. Service. The court dispensed with service under CPR 6.28. The appropriate test was whether there were good reasons, rather than the exceptional circumstances required under CPR 6.16. The respondents were not effective respondents, could not readily be located, or had been dissolved. [2021] UKSC 22 supported that approach.
2. Applicable principles. Distribution under section 382(3) should further the compensatory purpose of the restitutionary order and the FCA’s consumer-protection objective. Where recoveries fall short of losses and the facts cannot be fully established, the court may adopt a rough-and-ready method. The method should be as simple as possible while remaining fair and taking account of the available recovery and the FCA’s resources. The FCA must take reasonable steps to identify qualifying persons and their losses, and the proposal must be reasonably fair.
3. Synergy. Section 382(3) was engaged even though the recovery arose from an undertaking in a consent order rather than directly from an order under section 382(2). The court adopted the construction in Paradigm. The FCA had taken reasonable steps to identify investors and losses. Because records were incomplete and losses could not be verified, a per capita distribution was sufficiently fair. The FCA was required to notify identified investors that participation depended on providing bank details by the bar date.
4. Maricar. The available third-party information permitted a fair pro rata assessment of losses. The respondent who had contravened FSMA was excluded from benefit because allowing him to share in the recovery would undermine the statutory policy. Given the wide range of losses, the number of investors, the small recovery compared with total losses and the burden of processing very small payments, a threshold of losses in excess of £500 was proportionate and sufficiently fair.
5. The proposed directions in both applications were approved, subject to the specified communications concerning bank details. A further investor identified after the hearing was added to the Synergy distribution schedule.

This was a first-instance decision on two applications for directions under section 382(3) of the Financial Services and Markets Act 2000. No appellate history was stated.